Calculate the WACC for Martin Industries given: A tax rate of 34%, the market re

Question

Calculate the WACC for Martin Industries given: A tax rate of 34%, the market return is 13.2% and the risk-free rate is 4.5%. 7,500 preferred stock shares selling at $88/share with a 6% dividend rate. 265,000 common shares outstanding selling for $76/share. The stock has a beta of 0.92 and will pay a dividend of $2.48 next year. The dividend is expected to grow by 4% per year indefinitely. 8,500 coupon bonds outstanding with a 7.1% coupon rate and 14 years to maturity. The quoted price is 102.6. Interest is paid semiannually.

8.22%

8.67%

9.29%

9.57%

10.08%

Explanation / Answer

The correct option is 10.08%

Workings:

Source of capital Market values Weights Cost of capital Weighted cost of caital Common stock $ 7,728,128 0.8346 0.12504 0.1044 Preferred stock $ 660,000 0.0713 0.06 0.0043 Debt $ 872,100 0.0941 0.04686 0.0044 Total $ 9,260,228 1.000 0.1131

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